Tuesday, December 16, 2008

Suggestions for the budget

I've been commenting on some other blogs that the budget is a hot potato. Neither the Conservatives or Liberals want to contribute significant ideas, for fear of being blamed for spending which doesn't work and for any resulting deficit.

The Conservatives desperately want to take some suggestions from the opposition so they can share the blame for any future economic problems. I won't beat them up too much over what's happened so far, other than spending away the contingency buffer. Canada didn't start this mess, it wasn't the Conservatives.

The Liberals are demanding better numbers from Flaherty before responding with suggestions. This may be partisan defense against being forced to make budget suggestions. If Flaherty doesn't cough up new numbers (or too late) the Conservatives appear uncooperative. If Flaherty comes back with optimistic numbers again, he'll appear to be lying (again). So I expect he'll come back with more pessimistic numbers. Both he and Harper have being managing expectations this week.

It is understandable to demand realistic numbers before contributing suggestions, and it might not be a partisan response but a necessary one. However Brison and MacCallum may already have their own numbers which may be close enough.

So what could the Liberals suggest for the budget? I guess that depends on knowing more about economics than I do. I'm a layman, speculating here. But this is a blog and that's my prerogative.

I think the worry is so many people curtail spending that demand falls, followed by deflation, which reduces demand, etc. in a spiral. So how to keep people spending?

Well, people need confidence in their jobs, and in the economy. I know the latest fed rate cut gave me cause for concern - I don't think it can go any lower, literally. I'm not worried about my job, but I work for the federal government. I bet everyone else is worried.

I guess the government spending is proposed to offset the drop in non-government spending. But how can infrastructure spending substitute for consumer spending? Surely there would still be job loss as the economy shifts from producing (distributing, etc.) consumer goods to infrastructure.

Much to consider. If anyone has some good links, drop me a pointer and I'll follow them up.

2 comments:

I suggest a couple of things to help Canadians which would include Business, the Banks and most importantly the people.The Federal Government ought to put money to work where it is most needed, in the local communites across the country. How to do this? Lets eliminate Income tax completely and also do the same for Corporate tax. This stroke would immediately put the money back in the main consumers hands and eliminate the inefficiecies of the goverment collecting it and then distributing it inequitably. Secondly this would have a longer term effect on the Goverment of Canada's ability to borrow money and set a path for more stable long-term interest rates.Thirdly create a new industry around new energy technologies, such as Geo-Thermal, to create new technologies which will give us sustained growth into the future and not throw money at an industry creating jobs by making gss guzzling cars. Lastly increase the consumption tax, GST and PST by one percent, to recoup the lost revenues of Income tax so we can continue to fund some social services, like great medical care.As Consumers we would then decide to spend our money, or not, to re-build the econonmy. In the event that we decided to save some of the extra money we would have, after not paying income tax, we could put this into investment vehicles, such as saving accounts, which in turn would help to create a greater pool of cash for the banks to loan out to businesses caught up in the current credit squeeze.Thanks for listening.Chris Jordan.

Wow! Eliminate all corporate and personal income tax? That's pretty extreme. There's no way a 1% GST hike would cover that. You'd have to raise the GST to unimaginable levels... but that would reduce consumption (as it should) and therefore reduce gov't revenue further, requiring more GST increase in a spiral. Even if you want to do that, it would have to be gradual.